India’s economic performance during the second quarter of the 2025 financial year has drawn significant attention after the State Bank of India released its latest economic analysis. According to the report, India’s GDP growth touched 7.5 percent in Q2, driven primarily by the robust expansion in festive season demand following a series of GST cuts on multiple consumer-facing sectors.

The report highlights that this combination of policy adjustments and revived consumer sentiment created a powerful push for consumption-led growth. The quarter coincided with the crucial festive period, a phase that traditionally sees increased expenditure across categories such as electronics, automobiles, apparel, home appliances, gold, and lifestyle products. With the government’s decision to rationalise GST slabs for several goods and services, the prices of many commonly purchased items fell, encouraging households to advance or increase their spending plans.

The impact of GST cuts on consumption

The SBI report underscores that the most crucial factor behind the 7.5 percent GDP expansion was the positive effect of the GST rate reductions. These cuts were introduced to stimulate consumption at a time when global headwinds and tight monetary conditions were creating pressure on domestic economic activity. As several essential and semi-essential items became more affordable, retailers witnessed a sharp rise in footfall and online platforms recorded record-breaking order volumes.

The analysis points out that in categories such as electronics and household appliances, consumers responded almost immediately to the lowered tax burden. Large-format retailers noted that the demand during the 2025 festive season exceeded even pre-pandemic levels, suggesting a significant rebound in discretionary spending. This strong momentum was not limited to urban centres. Tier-2 and Tier-3 cities also reported unprecedented sales during Navratri, Dussehra, and Diwali.

Broad-based participation across sectors

While consumption was the central driver, the SBI report explains that the rise in GDP was not restricted to a single sector. A more broad-based recovery contributed to the headline figure. Manufacturing output improved as producers ramped up supply to meet higher festive orders. Logistics companies registered an increase in movement of goods, indicating the spread of economic momentum across supply chains.

The automobile sector in particular benefited substantially from the GST changes. Two-wheeler and entry-level car sales showed strong double-digit growth during the quarter. This boost, the report indicates, is a sign of healthier economic conditions as these categories are often considered indicators of discretionary spending capacity among middle-income households.

The services sector also enjoyed an uptick. With travel, tourism, entertainment, and hospitality continuing to recover, sectors that depend heavily on consumer mobility witnessed strong revenue flows. Airlines, hotels, and e-commerce platforms capitalised on festive demand by offering steep discounts, which in turn pushed overall consumption even higher.

The role of consumer confidence

A key takeaway from the SBI study is the noticeable improvement in consumer confidence, which played a significant role in sustaining the festive season’s growth momentum. After several months of cautious spending due to global uncertainties, the combination of easier taxes, rising incomes in some sectors, and stable inflation encouraged buyers to increase consumption.

The report notes that consumers were more comfortable making high-value purchases during Q2. Gold sales, electronics, real estate bookings, and premium apparel categories all experienced strong upticks. The confidence index measured by internal SBI surveys suggested that households felt more positive about future earnings and job prospects compared to earlier quarters.

Inflation stability supported growth

Another important factor contributing to the Q2 performance was moderating inflation, which provided additional relief to consumers. Although food inflation remained sensitive at times due to supply-side fluctuations, broader inflation remained within the Reserve Bank of India’s comfort zone. Stable fuel prices and efficient supply chains ensured that the effect of GST changes was transmitted effectively to retail prices.

SBI argues that this stability in prices further amplified the impact of the festive GST cuts, as consumers felt their budgets stretching further. Lower inflation also meant that the purchasing power of salaried households remained intact, reinforcing spending across the economy.

Corporate and manufacturing trends

The manufacturing sector showcased particularly strong performance in segments linked to festive sales. Electronics manufacturers scaled up production ahead of the festival season, with several factories operating at near-maximum utilisation. The Make in India initiative played a role here as domestic production capacity in mobile phones, appliances, and consumer electronics has improved significantly in recent years.

Corporate earnings reflected this trend as well. Many listed companies in the retail, automobile, and FMCG sectors reported revenue growth in the double digits during Q2. The SBI report suggests that this corporate performance added to overall economic confidence and encouraged more investments in marketing, capacity expansion, and product development.

Digital commerce as a growth accelerator

The rapid growth of digital commerce added an additional layer of support to the economy. E-commerce platforms strategically aligned their discount cycles with the GST revisions, offering bundled deals and financing options that attracted millions of buyers. The result was a dramatic increase in online order volumes.

Digital payments also surged during this period. UPI transactions broke all previous records, reflecting the broad adoption of cashless transactions across India. This increase in digital consumption contributed significantly to service sector growth and broadened the base of economic activity.

Rural demand improves but with caution

While urban centres saw an exceptional rise in spending, rural India also contributed positively to the GDP expansion, though the pace was more moderate. The SBI report suggests that a favourable monsoon and improved kharif output supported agricultural incomes. This helped rural demand recover after a relatively subdued first quarter.

Sales of two-wheelers, agricultural equipment, fertilisers, and basic consumer goods all saw measurable improvements. However, the report notes that rural consumption is still somewhat sensitive to weather patterns, commodity prices, and income stability, making it an area requiring continued policy attention.

Government policies and fiscal outlook

The GST rationalisation was not the only policy contributing to growth. The government’s continued focus on infrastructure investment, including highways, railways, ports, and urban projects, offered significant multiplier effects. Increased public capital expenditure supported job creation and boosted demand for construction materials, machinery, and related services.

Strong tax revenues during the quarter demonstrated the combined effect of higher consumption and improved compliance. The SBI report suggests that if this momentum continues, the government may achieve its fiscal deficit targets more comfortably while sustaining growth.

Future expectations and outlook

Looking ahead, SBI remains optimistic about India’s growth trajectory for the rest of the financial year. The bank’s economists believe that the combination of strong festive momentum, lower GST rates, stable inflation, and rising digital commerce will continue to support economic expansion.

However, the report also warns about potential global risks such as volatile crude oil prices, geopolitical tensions, and fluctuations in export demand. A slowdown in major global economies could affect India’s external sector, although strong domestic demand is expected to buffer some of these challenges.

Conclusion

The SBI report paints a positive picture of India’s economic environment during the second quarter of FY2025. The 7.5 percent GDP growth is a testament to the power of consumption-led momentum reinforced by GST cuts and strong festive sentiment. With manufacturing, services, digital commerce, and retail sectors all participating in this expansion, the economic base appears broader and more resilient.

Going forward, the continued success of policy measures, consumer confidence, and stable pricing conditions will be crucial in determining the sustainability of this growth. For now, India’s festive quarter has delivered a strong boost, showcasing the country’s capability to harness internal demand to drive meaningful economic progress.

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